US dollar rate hits MVR 22.10 in Maldives parallel market

The US Dollar selling rate reached MVR 22.10 in the Maldives' parallel foreign exchange market on Sunday, the highest level reported to date.

The official exchange rate for the US Dollar remains at MVR 15.42. However, rates quoted by foreign exchange traders have continued to rise amid demand for dollars outside the banking system.

Foreign exchange traders said the selling rate reached MVR 22.10 per dollar on Sunday, while the buying rate stood at MVR 21.85.

The latest increase marks the first time the parallel market rate has crossed MVR 22.

The widening gap between the official and parallel market rates has increased the cost of obtaining foreign currency for businesses that rely on the parallel market.

As the Maldives imports most of the goods consumed in the country, increases in foreign exchange costs can also affect import costs and consumer prices.

Foreign exchange traders have attributed part of the shortage of dollars in the open market to foreign exchange regulations requiring tourism businesses earning in US Dollars to exchange a portion of their foreign currency earnings through banks.

Under the requirements, tourism establishments must exchange a prescribed amount of their dollar earnings through the domestic banking system.

Traders say the measure has reduced the amount of foreign currency available outside the banking system, contributing to an increase in the parallel market exchange rate.

The rise comes as the Maldives Monetary Authority (MMA) moves to tighten monetary policy to reduce surplus Rufiyaa liquidity in the economy.

The central bank announced last week that it would increase the Minimum Reserve Requirement for Rufiyaa deposits and make changes to its Open Market Operations as part of measures to absorb Rufiyaa liquidity from the financial system.